Government, which is desperate to end load shedding, will reward households and businesses with tax deductions if they opt for renewables.
On Wednesday, Finance Minister Enoch Godongwana, during the tabling of the Budget, announced two tax measures to support the rollout of renewables by businesses and households and thereby relieve pressure on the national grid to reduce load shedding.
Individuals from 1 March 2023 will be able to claim 25% in tax deductions on the cost of solar PV panels for rooftop installations. The incentive is capped at R15 000 and is available for one year, Godongwana said.
So if an individual were to purchase 10 solar panels at the cost of R40 000, their personal income tax liability would be reduced by R10 000 for the 2023/24 financial year.
The condition of the tax rebate for households is that the solar panels must be purchased and installed at a private residence, and a certificate of compliance for the installation must be issued from 1 March 2023 to 29 February 2024, according to the Budget Review document.
The tax deduction does not apply to inverters or batteries because government wants to promote additional energy generation.
For businesses, an existing incentive in terms of section 12B of the Income Tax Act will be expanded, explained Treasury’s chief director of economic tax analysis Chris Axelson. Currently, the provision allows businesses to claim a 100% deduction for renewable energy projects under 1MW. For projects greater than 1MW, they can claim back 50% in the first year, 30% in the second year, and 20% in the third year.
But from 1 March 2023, the expanded incentive kicks in and will allow businesses to claim a 125% deduction in the first year for all renewable projects – solar PV, concentrated solar power, wind, hydropower and biomass projects.
There is no threshold on the size of these projects, explained Axelson.
The incentive will apply for two years.
Treasury wants the incentive to encourage more private sector investment in renewables to reduce load shedding, Axelson said.
Treasury is not concerned that businesses might take advantage of the incentive, as the South African Revenue Service (SARS) is “capable” of ensuring there is no “double dipping” and the like, said Treasury’s chief director of legal tax design, Yanga Mputa. SARS is already policing the existing capital allowances. The only difference now is that the budget is proposing an extra 25% in deductions, said Mputa.
Record load shedding
Load shedding hit a record of 207 days in 2022 (more than half the year), up from 75 days recorded in 2021. It has had a crippling effect on the South African economy, and Treasury has lowered growth projections for 2023 to 0.9% from 1.4%. This is also the lowest level since 2020.
But the government is placing a lot of reliance on renewables to help satisfy energy demand in the coming years.
Nearly 6 500MW of power is to be added to the grid over the next 24 months. Most of these projects are expected to be embedded generation or those owned by companies to meet their energy requirements.
Government is also relying a lot on additional generation to come from rooftop solar PV in the current year.
Projects from bid windows 5 and 6 of the Renewable Energy Independent Power Producer Procurement Programme are expected to come online from 2024.
By 2025 independent projects making use of Eskom’s land lease programme are supposed to add more generation capacity. The first phase of Eskom’s land lease programme will secure roughly 1 800MW of power. The second phase of the programme, recently launched, is expected to yield 500MW.